There are basically 2 different ways to execute your crypto arbitrage trading strategy.
Auto VS non-auto trading strategy
- Auto trading means that you trade manually which means you sit an click in front of the computer or mobile device.
- Non auto trading means that you set up predetermined rules and let a bot trade automatically for you once any of these rules are triggered by the market.
Almost any crypto trading strategy is possible and maybe even preferably to automate with a bot.
What is arbitrage trading?
An auto crypto arbitrage strategy is a computer program that examines and compares coin prices across exchanges in order to make automated trades that take advantage of price discrepancies.
For example, a Bitcoin arbitrage trading bot might identify that BTC is trading for $50.000 on Kraken and $50.100 on Binance.
This will trigger the bot to buy ETH on Kraken and quickly sell it on Binance in order to make a small profit.
See example illustrated in the picture below.
- Alice deposit $5.000 to Binance and buy 0.1 Bitcoin
- Alice transfer 0.1 BTC to Kraken and sell it for $5.010
- Now, Alice and transfer the $5.010 back to Binance and buy 0.1002 BTC
Of course, this method is not applicable for small transactions since there are fees involved in all these transfers. Also, the method must be automated by trading bots because the prices change very fast and you can miss the arbitrage opportunity by being too slow.
Therefor, arbitrage trading is commonly leveraged by hedge funds and large institutional investors.
